Transparency – A Catalyst for Cost Behavior and Resource Allocation
Transparency in business operations, especially in the realm of procurement cost management, is much more than a simple buzzword; it serves as a...
While buying in smaller quantities may seem convenient, it isn’t always the most procurement cost-efficient approach.
Engaging in a transparent conversation with suppliers about ideal order quantities—beyond just minimum requirements—can offer illuminating insights.
Consider the experience of a certain company that procured product labels based on their immediate production needs, usually around 10,000 labels at once.
When a perceptive procurement team member inquired about the price implications of purchasing 100,000 labels simultaneously, they discovered that the cost was only marginally more—25% to be precise. The reason? The bulk of the expenditure was associated with the setup costs at the printing facility. Components like paper, ink, and adhesive were merely incremental costs in the grand scheme.
Consequently, the company pivoted to ordering 100,000 labels in one go and negotiated with the supplier to store the surplus for a nominal fee. This maneuver substantially diminished the per-unit cost and was implemented in a mere fortnight from the conceptual stage. Such strategic purchasing isn’t exclusive to any particular sector; similar economies of scale can be reaped across diverse industries.
While there’s an inherent cost to capital and holding inventory, it’s essential to discern the difference between a price tag and the real cost of procurement. Such insights are a mere conversation away. So, forge ahead and engage your suppliers to pinpoint areas ripe for enhancement.
See our top 20 free advice for rapidly reducing supplier costs